Who Leads the World in Private Equity Crowdfunding

Private equity crowdfunding is currently the new wave in angel capital and small scale private equity investing, with the appearance of such firms as CircleUp, MicroVentures, and GOOD looking to address what they consider to be inefficiencies in the matching of smaller scale investors with capital-seeking entrepreneurs.

With crowdfunding growing at breakneck speed (see chart above; Massolution has total crowdfunding volume growing to $5.1 billion in 2013 or 813 crowdfunding platforms), the question is: who leads the world in private equity crowdfunding and who is likely to lead the crowdfunding world in the future?

Well, according to David Drake of Forbes magazine, Italy is the first to really support the idea behind private equity crowdfunding for anyone beyond the accredited investor, with Italy’s Commissione Nazionale per le Societa e la Borsa (CONSOB) (the equivalent of the U.S.’s Securities and Exchange Commission) requesting public comment on proposed rules for equity crowdfunding that allows non-accredited investors to take part in the investing arena. Once implemented, Italy will likely surpass the U.S.’s JOBS Act by doing away with unneeded restrictions related to non-accredited investors.

Italy’s proposed rules would still impose a good deal of regulations on individuals interested.  For instance,  before an entrepreneur can seek crowdfunding for equity stake, a financial entity must hold at least 5 percent of the offering.  Italy’s CONSOB is also attempting to limit the group of companies eligible for equity crowdfunding to only firms considered “innovative startups.”  Additionally, firms in the crowdfunding industry controlling the internet portal must be financial entities or a registered bank (which, not surprisingly, is overseen by CONSOB).

Will Italy Take the Lead from the U.S. in the Crowdfunding Universe?

Possibly. According to Andrea Albanese, a crowdfunding adviser, platforms in Italy will definitely attempt to do just that – shift the technology talent and financial attention away from the over-regulated businesses in the United States towards a more open Italian system.  One thing is for certain: the momentum is on Italy’s side to overtake the U.S.-based platforms’ first mover advantage.

How much of a risk is the proposed Italian structure to U.S. businesses and investors?  The angel, venture, and private equity clusters in the United States, in conjunction with the technology and other entrepreneurial clusters, likely put any large scale movement towards the more competitive Italian regulatory structure at least a few years down the road; although, as any good businessperson will tell you, it’s better to address the problem now before it grows into a problem.

Overall, with Italy considering opening up the crowdfunding universe to non-accredited investors, Italian businesses could become the world leaders in private equity crowdfunding, shifting entrepreneurship and technical talent away from the leadership of the United States